Donna Gray knows it would probably be cheaper to cash her monthly disability checks at a bank rather than at a check casher, but a bank refused her an account, she said, citing negative items on her credit report.

So, fees at a local check cashing outlet eat up about $11 of her $386 monthly disability check.

"The banks have made everything miserable," she said, laboring to pull her ankles and feet, swollen from the effects of heart surgery, into a van outside of a busy Newport News check cashing business.

Gray is among a growing number of people who, although they are barely making it, pay higher fees than those who use banks to handle their money. Check cashing is just part of an exploding fringe banking system that caters to Virginians who have the hardest time acquiring wealth.

Virginia laws have allowed more high-fee lenders to operate in the state over the past three years, giving residents hundreds of fast and easy options for accessing money - their own, and lenders'. Proponents say they offer credit to people who have no other options and cash to families struggling through rough times. But these options often charge what amounts to triple-digit annual interest rates, even though there often is little or no risk to the lenders, consumer groups argue.

Since the state began regulating payday lending in 2002, numerous financial companies have moved in for a share of Virginia workers' money, to the tune of nearly $1 billion last year. By the end of 2004, there were nearly 700 payday lending outlets in the state.

Del. Harvey Morgan, the state legislator who penned a bill that opened the door for the industry in Virginia, has been looking for ways to restrict such lenders as he has watched the growing effects of the law he helped pass.

"I'm not sure we did the right thing," Morgan said of the payday lending law. "We wanted (payday lending) to be available so people wouldn't have to have bounced check fees or be late on their rent. But they get caught in this thing, and they sometimes end up paying interest in the thousands."

Most disturbing, Morgan said, is the fact that many consumers take out additional payday loans to pay off the initial loans, racking up thousands of dollars in fees. Last year, 76,068 Virginia borrowers received 13 or more payday loans, according to the Virginia State Corporation Commission, which polices the lenders.

PUT IN A PINCH

Dee Bowers, a 63-year-old retired Newport News resident who lives off of less than $800 a month in alimony and Social Security, said she has been getting cash advance loans on her checks for months now. She has come to depend on them to cover basic expenses throughout the month - mainly gasoline and food.

Bowers borrows $100 a month and pays back the $115 she owes the next month. She said she didn't want to start getting loans at such a high interest rate, but decided it was a better option than what she had been doing to get cash: taking her jewelry to a pawn shop. Bowers said she was always worried that she wouldn't be able to pay the loan back and she would lose her precious few possessions to the pawn broker.

Morgan now calls the payday lending law a "boondoggle," even though it forced lower fees among out-of-state payday lenders that operated here through nationally-regulated banks. State-chartered banks could not offer the services.

The state's payday lending law requires that lenders charge no more than $15 per $100 borrowed, and certain disclosures must be made. The loan term must be at least seven days. The fee for a two-week loan, when figured as an annualized percentage rate, amounts to 391 percent interest.

Last year, Morgan drafted more restrictions for payday lenders, this time making it illegal for them to garnish military wages, conduct collection activities against military borrowers or their spouses if the borrower is in combat, or contact anyone in a military borrower's chain of command.

Morgan isn't the only one looking for solutions.

TRYING TO HELP

Groups that work with low-income people are looking for ways to help the poor handle their money better by giving them cheaper alternatives to what's known as the fringe banking system. That system includes payday lenders, check cashers and income tax outlets that charge high fees for advances on refunds.

The Virginia Interfaith Center for Public Policy, a nonprofit advocacy group based in Richmond, is forming a "fiscal think tank" in which economists would scrutinize the effects of state policies upon the poor, said Douglas Smith, executive director.

"These economists will crunch numbers so we can take the raw data and actually prove what's happening," he said.

Members of the group also are in early discussions about forming a bank or credit union that would provide poor families a low-cost alternative to payday loans or other high-cost loans, Smith said.

"We know people often need short-term loans, but they need loans in a way that won't trap them," he said. "We would need to find some heavy investors. It might be churches, it might be Rotary clubs, it might be individuals who want to give back.

"We would probably start very small in a locality," he added. "Likely in a place like Tidewater."

Such a credit union for low-income residents already exists in Newport News. The Office of Human Affairs, a community service, founded a credit union about 25 years ago, said Robert Ayers Jr., executive director. But it only has 325 members, and doesn't offer checking or ATM access, and patrons must travel to the credit union's office at 2410 Wickham Ave.

Credit union officials are looking at adding those services soon, Ayers said. That would likely boost membership, because many customers need those services.

Ayers said he hopes the new services would entice more customers, who could amass money in the long run. Instead of becoming bogged down in high-fee loans, more poor people could become customers of the credit union and build savings rather than ask the group for help after they've become mired in too much high-interest debt, he said.

"They have very little left on payday," Ayers said. "They come to us, to our emergency services, because they're out of food or there's a problem with rent."

Ayers and other poor advocates said they also worry about car title lenders, which began setting up stores in Virginia after payday lenders flooded the state. Residents who own their cars can hand over the titles in exchange for a few hundred dollars. Fees often exceed 300 percent annualized percentage rates, and if the borrower defaults, he can lose his car.

CHANGING THE LAW

During the next legislative session, a state lawmaker is likely to introduce legislation to restrict the practice.

State Sen. J. Brandon Bell, R-Roanoke, tried last year to force car title lenders to comply with the state's small loan law, which says lenders can't charge more than 36 percent annualized percentage rates for loans of less than $2,500. Industry lobbyists convinced lawmakers to table any restrictions until the next session. He did not return phone messages for this story.

Car title lenders, Morgan said, exploit a state law that governs revolving credit, for example credit cards. The law lets credit card companies charge any interest rate to which a lender and borrower agree. Morgan said he would like to close that loophole.

Banks are not always an easy alternative for people in a financial bind, said Jean Ann Fox, director of consumer protection for the Washington-based nonprofit Consumer Federation of America watchdog group. High fees for bounced checks are sometimes a worse alternative than a payday loan, she said.

Citing a Bankrate.com study, Fox said banks' bounced check fees rose 5 percent in the first half of the year. That was after several years of double-digit increases, another study showed. Banks in a Consumer Federation study charged an average of $28.57 for overdrafts.

During the past several years, many banks adopted "bounce protection" plans, which charge hefty fees to consumers who bounce checks, but allow them to do so without losing their banking privileges.

The payday for banks has been big for instituting such programs. The nonprofit Center for Responsible Lending estimates banks charge customers $10 billion in nonsufficient funds and overdraft fees per year.

The payday loan industry points to these fees as reasons a payday advance loan is better than overdrawing a bank account, even at 300-plus percent annualized rates.

"If you need 50 or 100 dollars between now and your next paycheck, there are very few places you can go," said Lyndsey Medsker, a spokeswoman for the industry trade group Community Financial Services Association. "They either look at a payday advance, which averages $15 per $100, or they're facing bounced check fees. They're determining what's most economical for them."

WITHOUT A BANK

Merely living without a bank account can be expensive, but there is an increasing number, like Donna Gray, who do, poor advocates say. A checking account at a bank or credit union can cost little-to-nothing. But a worker who has no bank account to deposit checks into may use a check cashing outlet and fork over several percent of each check to the casher. Then, to pay bills, they buy money orders. At 7-Eleven stores, those sell for 99 cents each.

In a report about people who don't have a bank earlier this year, the nonprofit Annie E. Casey Foundation asked rhetorically, how many middle class families face costs like $12 to cash a paycheck every two weeks? Or $35 "bounce protection" charge for overdrawing a bank or debit card? Or $200 for a rapid refund loan at tax time?

"Banks used to be willing to cash checks for nondepositors, but now they're more likely to charge a fee or fingerprint you," Fox said.

CHANGING THE RULES

The next legislative session is sure to see more action by lawmakers and consumer advocates to place more restrictions on subprime lenders.

Morgan said he wants to submit a bill requiring lenders to deny loans to applicants who already have payday loans outstanding. Also, the minimum loan term should be increased from seven days, as it is now, to 60 days, giving the borrower time to set aside funds to pay it off, he said.

Borrowers are forced to get more payday loans to pay off outstanding loans because they haven't had time to save enough to cover the original loans, plus the added fees, he said.

He also wants to pass regulations requiring a 30-day waiting period between loans, to keep borrowers from paying off one loan with another. But Morgan noted all of his efforts might be futile.

"You could pass all the regulations you want, but there's always going to be some way to get around them," Morgan said. "We have to try to do something, because it really has gotten out of hand."

ONE CITY TAKES ACTION

One Virginia community is asking for the power to limit their spread. Colonial Heights, a city of 18,000 near Fort Lee, has 14 payday lenders, most of them along a main retail strip.

"It brought up a community sentiment that, 'Why would there be so many of these?'," said Richard A. Anzolut, Colonial Heights' city manager.

That city's council adopted a resolution in November asking the area's state lawmakers to help give localities the power to limit the number of payday lenders within their borders.

That power would be welcome, said Florence Kingston, director of development for Newport News. A study by California State University, Northridge, found that Newport News' 23605 Zip code - an area that includes the East End - had the state's highest concentration of payday lenders.

"The state legislature has authorized their existence," Kingston said. "It has troubled me that we seem to have fewer bank branches in low-income communities and these alternative financial institutions are popping up."

NAVAL STATION NORFOLK — The Navy on Saturday commissioned the USS John Warner, adding a 12th Virginia-class submarine to the fleet and celebrating the legacy of its namesake, the retired senator who was hailed as a statesman.